Pennsylvania Federal District Court Rules Public Records Vendor Is Consumer Reporting Agency Subject to Fair Credit Reporting Act

A Pennsylvania district court has ruled that a company that provides reports based on a search of public records is a "consumer reporting agency" (CRA) as defined by the Fair Credit Reporting Act.

In McGrath v. Credit Lenders Service Agency, Inc., the plaintiffs applied to a bank for a loan to refinance their home mortgage.  The bank engaged Credit Lenders Service Agency (CLSA) to conduct a public records search on the plaintiffs and provide a report.  To prepare a report, CLSA subcontracted with people who go to various record repositories (e.g. directories of open judgments and municipal liens maintained by courts) to conduct a physical search and send the results to CLSA.  CLSA's report to the bank about the plaintiffs erroneously listed outstanding civil judgments against them.  The plaintiffs claimed that they contacted CLSA which refused to investigate the alleged inaccuracies.

The plaintiffs sued CLSA, alleging that it violated the FCRA by failing to follow reasonable procedures to assure maximum possible accuracy when preparing a consumer report (15 U.S.C. Sec. 1681e(b)) and by failing to conduct a reasonable reinvestigation of the plaintiffs' dispute (15 U.S.C. Sec. 1681i(a)).  CLSA moved for summary judgment, asserting that it was not subject to the FCRA as a matter of law because it was not a CRA and did not supply "consumer reports" within the meaning of the FCRA.  It also asserted that even if it was subject to the FCRA, no reasonable juror could find that it violated either FCRA provision.

As an initial matter, the district court found that CLSA was a CRA.  In doing so, it rejected CLSA's argument that an entity can only be a CRA if it issues "consumer reports."  Based on the FCRA definitions of the terms CRA and "consumer report," the district court concluded that to be a CRA, an entity does not actually have to furnish "consumer reports" but instead must act for the purpose of furnishing "consumer reports."  Thus, an entity could be a CRA if it acted for the purpose of furnishing "consumer reports" even if it never produced a report or the intended report is determined not to be a "consumer report."  Stated differently, "the Court does not need to determine that an entity actually produced a ‘consumer report' to find that it is a [CRA]."  However, the court indicated that the opposite was not true, meaning the FCRA's definition of "consumer report" does require the report to come from a CRA.

Turning to the issue of whether CLSA was a CRA, the court found that CLSA's operations satisfied the elements of the FCRA definition.  In addition to receiving monetary fees and using interstate commerce, the other elements of the CRA definition require an entity to regularly engage in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties.  CLSA argued that it was not "assembling" information but had only accessed records of open judgments on the court's database that were assembled by the court.  The court rejected this argument, finding that the judgments were only a portion of the report, which included other information such as outstanding mortgages, home value, and other outstanding liens.  According to the court, "assembling" does not require the changing of contents but only requires the gathering and grouping of information.  The court also found that CLSA's reports were "consumer reports" for purposes of the FCRA.

With regard to CLSA's alleged FCRA violations, the court was unwilling to grant summary judgment in favor of CLSA on the plaintiffs' claim that CLSA had negligently violated Section 1681e(b) by failing to follow reasonable procedures to assure maximum possible accuracy when preparing consumer reports.  Among the elements that must be established to prove a Section 1681e(b) violation is that inaccurate information was included in a consumer report due to a CRA's failure to follow reasonable procedures.  The district court refused to follow the Seventh Circuit's 1994 decision in Henson v. CSC Credit Services, which held that as a matter of law, a CRA does not violate the FCRA by reporting inaccurate information obtained from a court's judgment docket absent prior notice from the consumer that the information may be inaccurate.  According to the court, Third Circuit decisions had made clear that the reasonableness of a CRA's procedures is a jury question and because there was evidence that CLSA took no steps to check the accuracy of the information it provides to customers and CLSA had not introduced evidence to show that its procedures were reasonable, a reasonable jury could find its procedures were unreasonable.

The court did, however, grant summary judgment in favor of CLSA on the plaintiffs' claims that CLSA had willfully violated Section 1681e(b) and that it had negligently and willfully violated Section 1681i(a) by failing to conduct a reasonable reinvestigation of the plaintiffs' dispute.  According to the court, based on Henson and the absence of direct Third Circuit precedent, CLSA's reading of Section 1681e(b) could have reasonably found support in the courts.  As a result, its Section 1681e(b) violation was not willful.  As to the plaintiffs' Section 1681i(a) claims, the court found that because there was no evidence in the record that the plaintiffs had notified CLSA of an error and requested a reinvestigation, there was no genuine dispute of material fact whether CLSA had negligently or willfully failed to conduct a reasonable reinvestigation.